Swiss Manufaccturing PMI at lowest since 2009
Source: Bloomberg, Credit Suisse
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The SNB has lowered its key rate again today, to 1.25%, after the previous 25bp cut decided in March
The view by our Chief Economist Adrien Pichoud: • Going forward, we believe that the SNB is now done with the recalibration of its monetary policy and that it shouldn’t cut rate further this year. • Swiss monetary policy can now be deemed as “neutral” for inflation and economic activity, as the real short term rate is close to 0% (actually just below with a cash rate of 1.25% and an inflation rate of 1.4%). • Provided growth remains on a gradual upward trend toward potential in 2025 (1.5%) and there is no unexpected development on the inflation front, there will be no reason for the SNB to lower further the CHF short term rate. • Should European or global developments trigger volatility and upward pressures on the CHF, we believe the SNB would rather resort to interventions on the FX market to manage the impact on the economy, rather than use the interest rate lever.
The Swiss National Bank cut borrowing costs again to loosen constriction on the economy and stem gains in the franc, a move that contrasts with the hesitancy of global peers over easing.
Officials in Zurich lowered their benchmark by 25 basis points to 1.25% on Thursday after a decision that observers found hard to predict.
Source: Bloomberg
Concurrently the cost of a Big Mac was 5.69 dollars in the U.S., and 5.87 U.S. dollars in the Euro area. What is the Big Mac index? The Big Mac index, published by The Economist, is a novel way of measuring whether the market exchange rates for different countries’ currencies are overvalued or undervalued. It does this by measuring each currency against a common standard – the Big Mac hamburger sold by McDonald’s restaurants all over the world. Twice a year the Economist converts the average national price of a Big Mac into U.S. dollars using the exchange rate at that point in time. As a Big Mac is a completely standardized product across the world, the argument goes that it should have the same relative cost in every country. Differences in the cost of a Big Mac expressed as U.S. dollars therefore reflect differences in the purchasing power of each currency. Source: Tavi Costa, Crescat Capital, Statista, The Economist